No other major metro area had the same combination of:
-Population growth and high income
-Population growth and income growth
-Income growth and moderate levels of inequality
The new decade has not started well, and the recipe for metropolitan success is being rewritten. Basic principles of Seattle’s evolution are coming into serious question: cosmopolitanism, technology, density, agglomeration, connectivity. But those features performed very well in the past decade, a stretch of time that was undeniably good for the Seattle area. Just how good?
Decades are random groups of years, but, oddly, the past several decades have been bracketed by significant economic events that defined them. The 2010s began during the long slog out of the Great Recession, and the new decade was only two months old when hit with the most unusual and deepest economic shock in memory. So it seems reasonable to think of the 2010s as a coherent economic era worth examining.
We can think of success along many dimensions, and here we will consider three critical ones: population growth, income growth and inequality. Is the area attracting people? Are people flourishing? Is success broadly shared?
Population and Income
There is a natural tension between population growth and income growth at the metropolitan level. High wages and living costs tend to drive out lower productivity industries, resulting in slower population growth—the boutique economy. Conversely, high population growth can drive down wages by attracting those low productivity businesses—the big box economy. Think of the difference between San Francisco (high income, low population growth) and Dallas (medium income, high population growth). Both regions are quite successful, but along different dimensions. How does the Seattle area fit with this tension? Quite well, it turns out.
The Indexer has previously highlighted the impressive income growth in the Seattle metro area in the past decade. It has also noted that population growth has been ho-hum. But what if we put those two measures together? Figures 1 and 2 do this for all 384 metropolitan areas in the U.S., with the size of the bubble indicating population. Figure 1 shows, for each metro area, the population growth rate from 2010 to 2019 on the x-axis and per capita personal income (PCPI) on the y-axis. Figure 2 shows population growth on the x-axis and the growth rate for PCPI on the y-axis.
In both cases we see Seattle with moderately high levels along each dimension. The yellow bubbles show other regions that would be considered successful, but that are less balanced. San Francisco and San Jose have very high PCPI and PCPI growth, but are barely above the national average for population growth. Austin, on the other hand, has high population growth, but still does not come close to the incomes and income growth rates of the West Coast tech centers.
(Figure 1 shows some outliers. Naples, Florida is a wealthy and fast growing retirement enclave, Stamford Connecticut is a small but wealthy financial center, and Midland, Texas is a small energy center. The small blue bubbles in the upper right portion of Figure 2 are also wealthy retirement communities like Napa, California, Bend, Oregon and The Villages, Florida. Figure 2 also highlights Provo, Utah, a still-small but fast growing technology center.)
Figures 1 and 2 show Dallas (with Houston occupying almost exactly the same space). The huge Texas metro areas have experienced strong population growth but not strong income growth. Phoenix and Atlanta, the other two large Sunbelt metro areas, are near Dallas on the charts.
No other large bubble has Seattle’s combination of population and income/income growth. Denver is the bubble just below Seattle in both charts and comes closest. That only two other large metro areas, San Francisco and San Jose, have higher PCPI growth rates than Seattle means that the three West Coast bubbles will keep moving upward in Figure 1. If current growth rates continue (a big if), Seattle will pass both New York and Boston (both to the left and slightly higher than Seattle in Figure 1) in PCPI the next few years.
Income and inequality
Strong income growth is less laudable if it is not widely distributed. We should ask how well the Seattle area’s success is being shared. The Gini Index is a common measure of income inequality. A reading of zero indicates that everyone has exactly the same income, and a reading of 1 indicates that one person has all the income. Figure 3 shows the Gini Index estimates for all metro areas, along with the PCPI growth seen in Figure 2.
The first thing to notice is that there is no correlation at all between inequality and the rate of income growth (correlation of 0.0002). The rate at which a region is becoming more prosperous has nothing to say about the degree to which prosperity is shared.
As far as Seattle, it again looks pretty good. Its Gini Index reading is well below the national average (lower readings mean less inequality), while its income growth rate is well above the national average. No other large metro area has the same combination of high income growth and comparatively moderate levels of inequality. Inequality in Seattle is well below the level in San Francisco and San Jose, the two yellow bubbles. And once again the Denver bubble is just below Seattle.
In the past decade Seattle seems to have achieved what no other large metro area has to the same degree: both quantitative and qualitative growth and success while avoiding severe inequality. Can the Goldilocks trajectory continue? Seattle would seem to be in a good position for continued success, but we will find out more over the next couple of years as the impacts of coronavirus unfold and new rules come into play. As the investment prospectus would say, past returns are no guarantee of future performance.